tv Options Action CNBC May 5, 2017 5:30pm-6:01pm EDT
>> here at the max market, coming to you live from the tomorrow time's square the guys are drying off behind me, here's what's coming up on the show. >> get in there -- >> that's what sober investors are doing, but there is something in the charts that suggest the bottom is in. we'll explain. plus, french elections are this week and odds makers give them a 16% chance of winning. >> so you are telling pe there is a chance? >> not really. don't worry, we'll help you fine
disaster insurance for your portfolio. and -- >> remember, the force will be with you, always. >> but with media stocks in a freefall, will the force be enough to save disney with the reports earnings next week? we'll tell you how to cash in. the action begins right now. ♪ plus, let's get right to it. who ill stockings are at an all time high, commodities are getting crushed, crude, copper, gold, silver, what does it say to the health of the global xi and the marks right here? let's go to money. sam, what do you think? >> well, it is something that stuck out over the last couple week as the markets have levitated here near the previous all-time highs may march 1st. one of the thing that's interesting is the weakness of the dollar we had over the same time period. all of a sudden we sea a weakness in china and weakness in commodities, a $that's not round, reits that are kind of stock, they're not signaling
anything, they're not signaling the same thing the stockmarket is about to make an all new time high. >> what those are signaling is economic weakness, right, a lot of times we look at commodity price, what we are interested is in the dollar is strong? is it inflationary or non-inflationary? we saw the iron ore demand, when you see those types of things, that doesn't both very well if we depend on that. we hear a lot about inflation trade. where is that going to come from, if economic growth in the largest markets is slowing. >> it's across the board, right? we know that basically half plus demand of all those key demands, industrial metals, so forth, it's zinc, rebar, nick em, if you look at the bloomberg iron ore and nippon, it's all rolled over, oil, of course, has been in a funk forever. the issue is, is it, is it
really important for idiosyncratic stocks like amazon that keep growing tear business? which is the message that's right. for instance, while the shanghai is in trouble the cots by is bringing it to all time high, the two things that that's tied to is semi conductors, an economic indicator and shipping. so there is a lot of cross currents, ultimately, i believe, i think you make the same case is equities cannot keep diver diverging from the message of industrial commodities. >> if we are to believe most of the softness in demand and the lack of growth comes from outside the united states, could there be a case that makes u.s. equities more attractive? in some ways they are a more safer haven? >> except the fact that carter talked about those five niems i names up 25, 30%, amazon, apple, facebook, google, whatever, they make up a disproportionate of our equity market.
it's concentrated in the names. these are the names back in 2016, the same sorts of risk assets were going crazy, meaning acting poorly, commodities, rates, the dollars, that sort of stuff, what was going on? money was pouring into those, they're kind of acting independent of global growth or growth here. >> let's get to the one commodity that's gotten so bad, it's actually good. >> right. so that's, you know, that's one of the great addages, the dumpster diving, stay away from weakness, let's do a little dumpster diving here, well, what will we talk about? commodities in general, first, structures s&p then i want to zero in on silver. so when i got two eyes, that's usually the start, s&p in blue and of course the thompson orders commodity so it relittle nates the overweight in crude. you can see obviously here this
huge divergence between equities and perhaps the message of global growth and or china. let's keep going. so, adding silver, same chart, i just added silver, so, now, of course, silver jumps out, again, all on a one-84 chart, compared to the other two. so let's take it away, again, they make a point there is this divergent between equities and commodities, which silver is a part of that orange line, few add silver, how bad this has been, the real point is to show how volatile silver is, silver overshoots. silver under shoots. silver over shoots and so forth. so the issue is, is this current lag down due for some sort of reprieve. i think it is. all right. 14 sessions in a row down. this is a remarkable thing. in fact, this etf, which was inception date in '06 has never had a 14 session decline and
today, it was up ever so slightly, just a little bit up, but i think that breaks the trend and we're going to make the bet that the start is now that's going to throw back. let's look at a few charts. one way to look at civiler is a longer-term charge we worked our way into this wedge an often things get resolved. now what happened was, it did. it broke out. but now it's failing. so the question is, is it going to fail? if we extend this line, if i were to extend this line, there you have it. i think it will hold. that so we will make the bet that silver is going to bounce having been quote oversold. it's right back to where it started on the year, not where it is, yes, holding a level that's key. finally, let's just talk about something i think is important. one of the great stories in all equity market, the hunt brothers, they tried to corner the silver market. they at one point hat 195
ounces, one-third of the total global supply. they were targeted themselves actually to stop this. and the commodity exchanges increase margins dramatically, essentially broke the hunt brothers. now the bullit said this is maybe all the way down to support and it's going to bounce. the bear would say, wait a minute, if this is all going to be very symmetrical, we have this much more to go. we will get down to here. i think it will play for bounce, independent of the long-day picture. >> the chart masters. how about you, mike? >> i'm comfortable with that. one of the things when commodities decline, there is nowhere else to put it. when oil dplut was in cushing, oklahoma, no place else to put it. with silver, with a precious metal, it's a little different, i'm looking auto to august buying the 15-and-a-half, 17 call spread. you can spend 50 cents for that, if it does continue to fall a little further, that itself the
most you will be risking, but a 50 cent pot in here would be small for silver. >> just before i weigh in. what you said is false. that's the key thing. what if we tried this after 11, it went down 12, we never were quite sure when bottom. it's never a good technique to buy weakness. at some point things mean revert i will make a bet it will. >> i'm not convinced. >> there you go. >> you never know, it's never smart, it's not a good strategy. >> but one thing we do know for sure, that is that it's moving sharply. if we use a trade like this one, if there is an opportunity to actually make a multiple of the amount you are investing. that's really the play here. >> i think the idea is you are being contrarian here t. setup you haven't seen in a long time, if ever. what i don't love. you know what i'm going to say, i don't love august. i don't like the tightness of a spread t. only thing i would
consider if you wanted to buy an elongated call like that august 15-and-a-half, i might not sell that 17 call in august. i might look to sell a shorter dated one, we would call that a diagonal calendar, whatever you want to do, it's getting tricky for you at home, maybe consider buying that call. that's your defined calm, if the call were to have a quick snapback three sexes ago, then you would look to sell a higher strike call. >> that costs 5% decays rather rapidly, selling that mitigates that fairly conservative. 17 is where -- >> the call the stock drops a dollar right then. you are stuck with this dollar-and-a-half call. >> imagine another stock taking a hit. the media stock, shares of viacom, discovery, disney, they're down, all this ahead of some very important earnings next week. julia boorstin is in los angeles with more. >> reporter: pt providers lose
half a million subscribers, which raised concerns about media stocks. those concerns were then fueled more by time warner's turn irand viacom showing average highs in decline, striking questions about whether higher ad rates will outweigh rating declines and cord cutting. now investors are looking ahead to disney, which reports tuesday afternoon. analysts projecting a 3% decline in revenue and 5% per share on tough comparisons a year ago quarter. on the heels of espn layoffs, investors are looking into insight into disney media network divisions in light of concerns about cord cutting and the impact of disney's record-breaking run at the studio, most recently with "beauty and the beast," there is a run that continues with a debut "garduardia"guardians of " the film is on track to gross as much as $150 million at the
domestic box office this weekend, which makes it the second biggest opening behind disney's "beauty and the beast." internationally the film grossed $167 million t. film shows marvel's ability to turn unfamiliar characters into a massive franchise. due to analyst michael moore says she positive on both disney's film studio and its parks division. with the media networks division under pressure, disney's ability to build brands such as guardians to bring them to its theme park and consumer 26s is all increasingly important, over to you. >> thank you. dan, how are you trading did my? >> here's the thing, the stock just got nailed last week. it's bounced. the low last earlier in the week was 10rk9s it was trading a-- 109, it was trading a above 115. you want plays back at 122, that was in august t. stock may take a little while to get there so
one of the things eximplied move on average, over the last four quarters, it's moved about 4%. i looing to do a call calendar, if you are bullish and looking to play for new highs the back half of the year, i want to target the last jedi that comes out december. when today the stock was trading at $112, you could buy the june 1r50e7b, december, call calendar, selling one of the june calls at $1.45, buying a december 115 call for $4 pin 45 t. ideal scenario here is over the next few weeks you'd have this stock move back towards 115. that june call would expire worthless. you end up working that december. you mit guite a third of a cost of that call to me, $3 is your mask risk. it's about 2% of the underlying stock price, if it goes that
way, you end up earning an elongate money call. >> i like these types of trades in general. all the companies are implying moves that are slightly larger than they have had historically. >> that means the near dated options are elevated, which is rare these days. >> that makes these types of trades that much more attractive. >> i go es the issue, let's say it hadn't had the draw down at 116 where it was four sessions ago, would you do it? >> probably not. >> i know you look at charts. i know you take advantage of this dislocation, it's probably not specific to disney. it was the group that forced it down. if it was where it was three days ago at 116, probably not. >> so where do you think this is going? >> i think he is doing our ting. he is targeting the prior from which it drew down. he is also taking advantage of the draw down, sometimes weakness they stay away from, maybe in silver. >> i still don't know how you think about that trade.
more "options action," check out our website, while there, check out our super cool newsletter, millions of you have, so what are you waiting for? here's what's coming up next. >> yeah, that itself what some fear a le pen win would mean for the markets. fear not. we'll show you how to buy disaster insurance. plus, calling up a "options action" fans, reach in your pocket. not your phone, and tweet us your question at optionsaction, if it's nice, we'll answer it on air when options action returns. >> logical. . hey gary, what are you doing? oh hey john, i'm connecting our brains so we can share our amazing trading knowledge. that's a great idea, but why don't you just go to thinkorswim's chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders? i know. your brain told my brain before you told my face.
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what?pony neighing] hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade.
welcome back to "options action," our michelle caruso cabrera in france, the polls are suggesting emmanuel macron, the 39-year-old will become the next president of france. the way the markets are acting, it appears investors have no worries about a trump-like or brexit surprise this come sunday. the euro is approaching 110 french equities are at multiyear highs, investors have seen a sigh of relief as they watch marine le pen's poll numbers fall, their concerns about le pen, her anti-euro position. she wanted france to do a frexit vote like the uk and calling for more french invenge into the economy. manuel macron his reform isn't all that's radical, he wants
france to be more competitive. here's the thing the markets are so complacent, that if they are wrong, it will be financial chaos on monday. back to you, melissa. >> all right. thank you, michelle caruso-cabrero in paris. if there is an upset this weekend, you could by disaster insurance. break it down for us, professor. >> so if you are talking act disaster protection, you can talking tail hedges, not the usual type of protection. so we are willing to take the small amount of losses, number one, we will look at puts out of the money. secondly, in order to minimize the options decay over time, we will try to look at how we can use time, finally, make sure you had just your positions from time to time as you can, taking a look at the s&p y chart here. so out of the money, i'm looking at 10% as basically the threshold, 10% will be down here some place some this part, we're willing to take the risk t. next thing, we will go out in time here. take a look.
january 2018, 215 puts will cost 210, that's essentially how much those long-indicted options will decay over 30 days. >> that a simple way to think about it. january, buy the 15 strike puts, those will decay about 60 cents over 30 days if the market does nothing, this is a trade you can hold on for a little bile. >> what do you you make of that raid? >> we talk about hedgeing a lot in front of events like this, like mcc said, there is a real complacent environment going on, you don't want to do this too frequently. you want to do it when you have gains or something you can hold on to. again, not too frequently. i know that mike probably considered the idea of buying the 250 or selling the 210. really you do this if you prepare for a 20, 30% sort of move, correct? >> one of the things is the europe stock 600 index our s&p
has lagged the s&p to such an extent that this catch-up trade, whether in european banks or industrials, which is now under way for only about four, five months, prunltively has legs, so independent of whatever comes with this election, i think there is still a potential on the part of europe. few look at where the stock 600 is, it's still at its 200 high. question made no progress there. the up with cost is a quarter oafter percent. you can paying very little. it will pay off if volatility pops or some big things, it's not really protection. you are so far out of the money. >> it's 10% out of the money the idea is you are trying to deploy that big draw down. you deep want to get me down on the year. you won't be. >> still ahead, tesla shares are stalling after earnings, which was good news for dan, he has a way to make even more money. he will tell you how when we
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>> welcome back to "options action," time to look back at our open trade, last week dan says tesla would stall on earnings. >> i think if you are a holder of the stock, you should consider near dated protections. today when the stock closed at 314, you can buy the may put spread for $10 bucks. selling one of the may 280 puts at $2. >> that is your mass risk. >> stock was higher by 4% today. it's down since dan put on that trade. >> what a snapback. this one you wanted to manage yesterday, down towards its lows. this put spread was probably a double. you we heard me say long holders might consider as a hedge. at some point, you have to make a decision if are you long the stock and the stock is down 290s
and it was down $25 from its recent high, how much protection do you still want? if you want to monetize that hedge, to me i want to stop a put spread at the event at the premium i paid. you might give it a little more time, if it snaps back, stop it at that $8, if it was a defined risk bearish bet. at one.it was double yesterday, you take half off. >> what does it look like at this point? you have been a fan. >> obviously, if you had news and a stock draws down the consensus is the news is bad. in a way, i think this is the more important data point is how it shrug it off. coming back up today, it would have gone back down. i think there is a lot of momentum here. it will amass, people short. stay with it. >> it's hard to press stocks with such short interest. this one, obviously the street loves the name. >> all right, up next, your tweets and the final call from the options desk.
[pony neighing] what? hey gary. oh. what's with the dog-sized horse? i'm crazy stressed trying to figure out this complex trade so i brought in my comfort pony, warren, to help me deal. isn't that right warren? well, you could get support from thinkorswim's in-app chat. it lets you chat and share your screen directly with a live person right from the app, so you don't need a comfort pony. oh, so what about my motivational meerkat? in-app chat on thinkorswim. only at td ameritrade.
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only at td ameritrade >> be sure to tune into cnbc exclusive cover ooj of sohn, including billing aman's presentation monday. tune in. time now for your tried, first fan asks -- what are your thoughts on the may 250/260/270 call fly? >> i would point out a $10 fly on a 250 strike, my wife is a huge fan of allergan. >> carts, i'm a huge fan of charts. i like it. >> time for the final call. carter, what do you say? >> silver so bad it's good. long slv, etf. >> i think you can use call spreads to do that. >> disney earning, calls
calendars is there it looks look our time has expired. thanks so much for watching. for more optionsing a, check out our website. in the meantime, have a great weekend. see you back here next friday. "mad money" with jim cramer starts right now. my mission is simple, to make you money. i'm here to level the playing field for all investors. there's always a bull market somewhere. and i promise to help you find it. "mad money" starts now. hey, i'm cramer. welcome to "mad money," welcome to cramerica. other people want to make friends, i'm just trying to make you some money. my job is not just to entertain, but to educate and tweet you. what the heck is it going to take to get this market really going. the house managed to